The slowdown in the industrial growth is a short-term phenomenon and the country is expected to record a 10 per cent growth in industrial production during the current financial year (2008-09), as against 8.3 per cent in the previous fiscal, Centre for Monitoring Indian Economy (CMIE) has said.
“We expect growth in industrial production to accelerate to 10 per cent in 2008-09 compared with the 8.3 per cent growth recorded in 2007-08,” CMIE said in its latest report.
The key contributors to this growth would be sectors like machinery, chemicals and transport, CMIE said.
“The recent trends reflected in the Index of Industrial Production (IIP) have raised anxieties of a slowdown in industrial activity,” CMIE said.
This, combined with the simultaneous rise in inflation, implied that the country was facing some kind of stagflation. But this was not likely to occur, CMIE said.
“We believe that industrial growth has slowed because of capacity constraints and inflation is high because demand is high,” the report said.
Industry has been increasing capacities since 2005-06, but the pace of this increase was evidently low compared to the pace at which demand has been growing, the report said.
“The industry is creating fresh capacities at an aggressive pace and, as these new capacities get commissioned, supplies would increase to meet the soaring demand. As a result, we believe that the current slowdown seen in the IIP numbers is a short-term phenomenon that would be reversed by the middle of 2008-09,” the report said.
The current slowdown in the IIP was a reflection of a partial breakdown in the data collection system and the use of archaic weights, CMIE said.
A correction on these two fronts would reveal a healthier industrial growth rate, CMIE said.
The growth in metals, non-metallic mineral products and textiles was also expected to contribute in the industrial growth, the report said.
“The chemical industry will show modest growth. It would grow from 10.4 per cent in 2007-08 to 13.2 per cent in 2008-09,” the report said.
In FY’09, while the machinery industry was expected to grow by 22 per cent, the transport sector was likely to accelerate its growth sharply by 10.2 per cent, CMIE said.
Also, higher capacity expansion coupled with increased consumption of metals are likely to push up the growth of the basic metals sector by 12.6 per cent in 2008-09, it said.
In the current financial year, the cement industry would grow by 11.5 per cent, it added.
